Rich Habits Podcast - 17: Becoming the 1st Real Estate Investor in Your Family

Episode Date: June 20, 2023

In this episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz share their top three ways to achieve financing for your real estate investments. We've learned from hosting over 100+ livestreams now on TikTok that most of you want to become real estate investors but are tripped up from the financing. We dive deep into DSCR loans, Self-Employment loans, and 203(k) loans -- all of which can help you become the first real estate investor in your family. If you have a question for next week's episode, be sure to ask it through Instagram DMs! @richhabitspodcast---Be sure to check out Public's new ⁠⁠High Yield Cash Account paying 5.1% APY.⁠⁠ This is higher than anything else on the market and is FDIC insured up to $5M. ---Earn 5.1% APY using a Public HYCA, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Opt-in and share your email, ⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠Learn more about our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠4-module video course!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Download our FREE Budget Template, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠click here!⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Robert: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/RobertJCroak⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠To learn more about Austin: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://stan.store/austinhankwitz⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Contact: [e-mail] ---Hankwitz Group LLC has an existing business relationship with NEOS Investment Management LLC. The opinions expressed are those of the author, and the author owns several NEOS ETFs.

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Amazon presents Laura versus Fruitflies. Swarming your fruit and terrorizing your kitchen, these little freaks multiply at a rate that would make a rabbit say, yo. Chill. But Laura shopped on Amazon and saved on cleaning spray, countertop wipes, and fly traps. Hey, fruit flies, your baby boom ends here. Save the Everyday with Amazon. Hey everyone and welcome back to the Rich Habits podcast, a top 10 business podcast on Spotify.

My name is Austin Hankwitz and I'm joined by my co-host Robert Croke. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt, and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job and corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. As the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique perspectives along the way.

One from an industry veteran, which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. All right, Robert, what are we going to be talking about in today's episode? In today's episode of the Rich Habits podcast, I'll be sharing my three best tips to help you get your first investment property financed. Having hosted over 100 live streams now on TikTok, I've realized countless people want to become real estate investors, but they get tripped up with the financing and potentially having a lower credit score. Specifically, we'll be talking about DSCR loans, self-employment loans, and the 203K loans, which is an FHA product. These acronyms may seem

intimidating, but I'm going to walk you through exactly how I've used these loans to buy and profit from real estate in the past and present. This is going to be an exciting episode because I actually don't know anything about these. I had to do a lot of research beforehand to even get familiar with them. So I'm going to be leaning on Robert a lot to be explaining these. So I heard DSCR loan. Robert, what does that stand for? What does it mean? Give me the play by play. So we're going to break it down and keep it simple, but make sure everyone understands the benefits of this loan strategy. The DSCR loan is a debt service coverage ratio loan. I'm going to break it down. The debt service, this means exactly what it sounds like, being able to service your debt, aka through the payments. The coverage ratio,

there's a ratio that tells the lender that you can fully pay back the debt based on what the rental amount per month would be. So $2,500 income. minus the $500 in monthly expenses divided by the $1,500 all-in mortgage payment gives you a ratio of 1.33. So as I said, anything over one is going to help this property fully qualify for the DSCR loan. Got it. So what I'm hearing is you're essentially going to a lender and saying, let me buy this house because it will cash flow and profit. here's the proof of that. And it's proof that I will, one, not only be able to pay you back the money that I owe you, but two, have extra money left over, which is that above one ratio you alluded to. And that extra money can be buffer in case, you know, the water heater goes out or something happens

at the home so I can help pay for that. Is that what I'm hearing? Yes. And on top of that, a few things that are kind of like those little pro tips of why I love some of these strategies is that for the DSCR loan, you can qualify with a 620 credit score or higher, and you don't need income verification because the bank is using the value of the property as the collateral against what the proposed rental amount will be. So it's such a simple process. Now, you do have a traditional down payment amount of 20%, but if you have a lower credit score and you don't have the income to qualify otherwise, this is a great loan program to use. This is very interesting. Okay, so far, this is my favorite. Let's learn about the second one.

What are self-employment loans, Robert? So the self-employment loan I used a couple years ago. I love this for entrepreneurs and so many people don't even know about this program. You can Google it and it's very hard to find anything on it. So make sure to call some of your local mortgage lenders that know you and know your work history as an entrepreneur, building businesses and such, because this is a really good one. And basically what it means is you don't have to have any W-2 income requirements, and they simply qualify you based on the deposits in your bank accounts and your taxable income. So basically, anything that you have as an entrepreneur non-related to W-2 income can qualify you along with your bank deposits. So even if you have deposits in your personal account, your business

account. They combine that to qualify you. And I think it's just an amazing program for people like myself. I don't have a W-2. When people say to me, hey, how much money do you make? Can you show us your W-2s? People like me don't have those. So you have to qualify with other ways and get creative. And this one is great for that aspect. And again, you only need a 620 credit score. And for this one, only 10% down. So it's an amazing program for those of you. entrepreneurs that struggle with the paperwork. You've got a little bit lower credit score right now. You're building yourself up. This is a great one to use. This is actually the loan that I believe that I used. And I feel like I should definitely know the name of the loan that I got to, you know,

to get my mortgage here in Nashville about a year ago. But yeah, this is essentially what I did, right? My local bank of Tennessee said, hey, Austin, you do not have W-2 income. We get that. But you've been banking with us now for a couple of years with your business. We see the money coming in, the money going out. We have a pretty good idea of how much you make on a monthly basis. If you want us to, we could figure out how to do one of these self-employment loans. And I was looking to purchase the house I'm sitting in right now back then. And this is what I did. So I had to share my bank statements. I had to sit down to a loan officer and explain what my business is. It's a very intimate process. But it definitely saved me the hassle of getting rejected

time and time again by your traditional lenders like Rocket Mortgage or others who I used to buy my first property when I had a normal W-2 income out of college. So if you are an entrepreneur who's trying to purchase real estate to live in like I was or even perhaps a rental property, this self-employment loan might be the answer to your problems. Definitely. Okay, Robert, let's route things off here with the third one you mentioned. It's not a retirement account. It's a loan. It's a 203K loan. What the heck is a 203K loan? Yeah, I love the 203K loan. This is an FHA product, and it's just a little bit different than a traditional FHA loan. Similar qualifications, but a little bit different. This loan combines both the mortgage and the repair cost. You can wrap it up into one loan and one payment,

and it will go up to 110% of the proposed after repair value. It's an incredible product for someone with a slightly lower credit score or less money for a down payment. That's why I really like it. So think house hacking. You can use this strategy to purchase your first duplex or triplex. It will count as a primary residence because you'll be living inside one of the units while renting out the others. So there's two types of this 203K loan. There's the streamline, which gives you a maximum amount of 35K for repairs. And then there's the standard, which is more than 35K for repairs. And it just depends on how much you qualify for.

But there's less limits on the repair value. are for those really damaged homes that they want to see, the government wants to see people fixing up and getting put back into use. So this is a great loan strategy for that type of loan. So these loans can be used for adding curb appeal, roofing, redoing your floors, maybe you want to make the home more accessible for older individuals. So it's just a really great strategy for people that are looking for new ones. ways or diversified ways to get a loan on an investment property. Especially an investment property

that needs some rehab, right? I think in our last episode, we talked about the Burr method, buy, rehab, rent, refinance, repeat as a great way for people to start getting into real estate. And I think maybe this 2 or 3K loan could be a part of that buying process. Yeah, and a couple other key factors here is again, the qualification. That's what started this whole episode, is finding programs for people that feel it's helpless where they don't have enough down payment or their credit score is a little lower. You can qualify for the 203K loan with a 500 credit score, which is phenomenal for people that are trying to build up their credit and get into the real estate industry. Then if you have a 580 plus credit score, so again, lower than 620 for all the others,

only a 580 credit score is needed to qualify for 3.5% down. So it's just an incredible program for people that are trying to get started and get moving on their real estate investment journey. As someone who now has an 800 plus credit score after years and years of figuring out the credit score algorithms and trying to learn from the credit brothers, great live stream last week, by the way, on TikTok with them. This, I wish I knew about this when I was 22, 23, 24, when I did have the 580, the 600-ish credit score, right? This seems like a really good idea for someone who is on that slightly lower side of the credit score range to look more into, do some research, perhaps find a lender near you.

Maybe someone who's done this before on the internet, you can ask questions to and learn more about. So I really like this one, the 203K loan. This is one of my favorites now. With that being said, Robert, let's share. with our audience, the sponsor of today's episode. Yes, this episode of the Rich Habits podcast is brought to you by NEOS investments. Nios offers ETFs that aim to offer monthly income while providing core portfolio exposure across equities, fixed income, and cash alternatives like T-bills.

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swings and potential for loss. A fund's income may decline when yields fall. Fixed income securities will decline in value because of an increase of interest rates. Now, let's jump into our question and answer segment. This is my favorite segment in every episode. We take these questions from our Instagram DMs. So one, go follow our Instagram at Rich Habits Podcast. And two, if you have a question you want to ask us, shoot us a DM. We read every single one of them and we do our best to either get back to you in the DMs with an answer or answer your question live on an episode. So our first question comes from Latasha D. Latasha says, I'm a single mom with a background in marketing and fitness. I'm stuck in the analysis paralysis stage when it comes to finding

a side hustle. With my background, what side hustles should I be considering? All right, Latasha, here's the deal. I don't think you always need to be leveraging your unique background when it comes to side hustles. Sometimes dog walking and food delivery could be the answer, depending on how much you want to make with a side hustle. If it's a couple thousand or even tens of thousands, that's absolutely achievable with these very normal Ubers and rovers and things like that. But, if you really want to lean into the fitness background and this sort of marketing background, perhaps you could teach classes at your local studio. Maybe you're into yoga or Pilates.

Or maybe you can begin selling personalized meals to friends and family, perhaps even through your Instagram or perhaps Facebook, right? I just, there's a lot of different ways to be achieving the let's make money on the side without leaning into existing unique backgrounds, right? That's kind of what the side hustle is. It's like, I'm just doing this to make some cash. It's not my career. It's not my passion, but I'm doing it because I need to get the extra cash.

I mean, that's a mic drop right there, Austin. I don't think I can really add much to that. I just totally agree that your side hustles don't have to have anything to do with your current skill set or what you market. But I would say whatever you're doing, look at it from a very simple understanding of money. Not always do you have to be passionate. Not always do you have to love it? At the end of the day, you're trying to make money to create a better wealth. scenario for yourself, whether you're early in your investment journey or later, that added cash

could be the difference between $500,000 in retirement savings or $2 million. So don't look at it so much that it has to coincide with your current skill set and look at it more as just an action to get the money you want. Wonderfully said, Robert. Our next question comes from Josh C. Josh asks, My daughter just turned one and received some cash for her birthday. I want to invest this money for her. What do I do with it? So here's what I would do, Josh. The first thing to consider is a 529 account, right? This is a tax-advantaged college fund for your daughter. So if you think she'll be going to college, essentially what you're doing here is you're depositing money into a $529 account. And that money is then invested into the stock market. And since she's won, she has 17 more

years of compound interest to accrue before she needs to take this money out. And when she takes the money out, it will be tax-free, which is great, assuming she uses it to pay for college. So that's the first scenario. The second scenario, maybe she doesn't want to go to college. And, you know, who knows in 18 years what college might look like. But the next scenario is to open up a normal custodial brokerage account on her behalf and just simply invest it into the S&P 500 through V-O-O. And that's it. Just park the money, invest it and come back in 17 years. Yeah, I love that answer in strategy, Austin. I think you nailed it. and people just need to realize that sometimes you can just put your money in V-O-O and let it rip for years and years and let it compound, and you're going to be in an incredible spot when your daughter turns 18.

Perfect. Next question here comes from Tiffany T. My husband and I have $16,000 in student loan debt that's currently paused at this 0% interest rate. We qualify for the $20,000 student loan debt forgiveness from Joe Biden, but aren't sure if we should wait around. for that to come or just paid off all right now. So here's the deal, Tiffany. I'm never going to be waiting on the government to do something for me. That's just me. I don't trust them. I'm not going to wait around for them to do. It's my personality, right? With that being said, I would want to then say, and I think you even mentioned in the DM that you have an emergency fund of about $35,000,

I would take some of that money and pay off the student loans and be done with it, right? And then now you can start your wealth building journey. Now you can say we have no debt, no high interest debt, no debt, no bad debt, it's time to start building wealth with our money. So that's my perspective. That's what I would do. I would not wait for this, you know, government to come around and say, yeah, we'll forgive you in, you know, four years or six years time. How long this is going to take? This is all a political stunt anyway. But I would instead take the money you already have, pay off those student loans and then start that wealth building journey. Wow, I love it. These are some great questions. And Tiffany, my take on this is a

bit different, but along the same lines. And just, you have to look at it this way. We can't trust what the government's going to do with these programs. We don't know where things are going with student loans. And since the new debt ceiling bill has included having the student loans resume in August, so assume your first payment's going to be September 1, you have to be prepared in your monthly budget to start paying those again. And you don't know what's going to happen. So I would really consider what Austin said, but I would also consider what's the interest rate on that student loan going to be? Because again, you don't want to be having high interest debt, bad debt lingering around for years and years to come. I just heard a story of one of my clients yesterday where she was working for a company for three and a half years because of the promise that if she worked there for 10 years, they would forgive all of her student loan debt.

and then she was three and a half years in, they let her go and said that program doesn't exist anymore. So then that was one of the big caveats of her staying with the company was to get that $150,000 debt removed and it just went away. So like Austin said, you never want your wealth building journey in the hands of someone else. So you want to take control of that and make sure that you're understanding your rights, what you're paying for, what you're not paying for, and do what's best for your long-term financial future. I couldn't agree more, Robert. Everyone, thank you so much for listening to this episode of the Rich Habits podcast. I learned a lot personally now about DSCR loans.

Learned a little bit more about those self-employment loans and my new favorite loan, the 203K loan. That is really interesting. I'm going to look into that one and definitely make a video about it on my TikTok here to come. If you have any questions that you want to ask us during the podcast, shoot us DM at Rich Habits podcast on Instagram. Don't forget, if you know someone who wants to get into real estate that might not have that 750 credit score or that 20% down, send this podcast episode to them so they can learn about different ways to begin investing into real estate and becoming

the first real estate investor in their family. And again, guys, thank you from the bottom of my heart for all the incredible support for Austin and I in the Rich Habits podcast. It was an incredible day yesterday when Austin shared with me that we broke the top 10 in a category that I think has hundreds of thousands of podcasts in it. So I feel so blessed and just appreciate all of you so much. Everyone, have a great start to your week and we'll see you next Monday.